What is Dish thinking with Sprint offer?

NEW YORK (CNNMoney)

The satellite company offered $25.5 billion to buy Sprint (S, Fortune 500), the No. 3 cell phone company in the United States, Monday morning. Dish has already courted T-Mobile, Clearwire (CLWR) and MetroPCS (PCS, Fortune 500). The company is clearly desperate for a wireless network.

Why is Dish (DISH, Fortune 500) so set on becoming a cell phone provider? Because Dish has been sitting on a large chunk of increasingly valuable -- but as of yet unused -- wireless spectrum for about three decades, and it is beginning to burn a hole in the company's pocket.

In the 1980s, the Federal Communications Commission set aside chunks of airwaves for satellite telephone service. Though that business never really took off, Dish has amassed a large portion of wireless spectrum through a series of deals over the past few decades. The FCC approved a proposal by Dish to use this spectrum for cell phone communications last December.

Dish must now launch a cellular network that covers 70% of the population that its spectrum covers within the next seven years, or its FCC license will expire. That means Dish has three options.

Build a wireless network from scratch: That's the least likely to happen. Wireless carriers spend tens of billions of dollars each year building out and maintaining their infrastructure.

The advantage of starting from scratch at this late juncture is that Dish would be able to build a cheaper, far-more-efficient 4G network right off the bat without the need to service outdated 2G and 3G networks. But reaching 70% of the nation in seven years would still be costly and next to impossible without help.

Buy a wireless company: Dish is sitting on a cash hoard close to $10 billion, and CEO Charlie Ergen has proven recently with his various offers that he's not afraid to use it.

Buying a cell phone provider would provide Dish with the network infrastructure and wireless expertise that it lacks. But cell phone companies not named AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) are struggling, and Dish would be inheriting a host of financial woes no matter what provider it buys.

Sell the spectrum: Ergen has long maintained that he has no interest in selling. He thinks that offering a so-called quad-play (TV, Internet, traditional landline phone and wireless service) is the best way to attract customers and keep them paying monthly subscriptions.

Selling could be incredibly lucrative for Dish. Verizon bought spectrum last year from a group that included Comcast (CMCSA) and Time Warner Cable (TWC, Fortune 500) for $3.9 billion. Dish currently values its spectrum at $3.2 billion. But the opportunity for Dish to profit from using that spectrum could be much greater down the road if it holds on to it.

"I think Dish wants something from Sprint that we are not really thinking about or talking about today," said Jeff Kagan, an independent wireless analyst. "It's not just about selling handsets to consumers, but in all the innovation that wireless represents."

If the future of technology is in wireless, Dish apparently would rather be a part of it than sell its stake too early.